Croesus Retail Trust (CRT) released earnings results for 2Q15, increasing its income available for distribution by 8.6% yoy as a result of acquiring additional retail malls. Distribution per share stayed at 2.08 cents, as units were issued to acquire assets.
Listed in May 2013, Croesus Retail Trust is a Japan-focused Retail Mall REIT, the first Asia-Pacific retail business trust with an initial Japan portfolio of four properties. CRT currently has seven retail properties in Japan, five of which – Luz Omori, One’s Mall, Aeon Town Moriya, Mallage Shobu and NIS Wave I - are located in the Greater Tokyo area, with the other two – Aeon Town Suzuka and Croesus Shinsaibashi – located in the Osaka region.
Key takeaway from results briefing
-
The mid-quarter acquisition of One’s Mall results in only a partial revenue contribution. 3Q15 revenue contribution from One’s Mall should be high, contributing to higher top-line revenue.
-
Long tenant leases provide good revenue stability. WALE of 8.8 years, but 3-5 year lease tenure on 60.6% of leases allows for upward rental revision given the current Japan retail market, which has notably strong showing in the Greater Tokyo region.
-
3Q15 will have a revenue hit from lease expiry downtime as 155 Mallage Shobu tenants are up for renewal and replacement, with 2/3 being replaced. Downtime will be offset by the higher contribution from One’s Mall, effectively netting off downtime revenue loss. Reasonable to anticipate 4Q15 will have best revenue performance based on current mall count.
-
Gearing has gone up to 50.9%, from 49% at 1Q15, with average all-in cost of debt going down to 1.96% from 2.1% for the same time period. Limited headroom still exists for the company to acquire new properties, but the company is more likely to issue more units in the event of an acquisition.
Valuation
Croesus Retail Trust trades at 8.62% and 8.92% consensus yield for FY16 and FY17, higher than the overall Singapore average REIT yield of 6-7%. Overall Croesus looks like a stable accretive play with upside potential from rental reversions in the current quarter.